BEEB 2033 APPLIED

ECONOMIC
(GROUP ASSIGNMENT 1)

DIGI
Group C
Submission Date :
29 March 2017
Submitted to :
Dr Munzarina binti Ahmad Samidi
Prepared by :
Number Group member Matric
number
1. Khor Yee Hooi 247740
2. Lee Yi Ling 247671
3. Amy Lau Yii Fong 246701
4. Eniwa A/P Jugit 238601
Introduction

Digi Telecommunication Sdn.Bbd is one of the phone mobile service provider in

Malaysia. The company majority owned by Telenor ASA of Norway with 49%. Digi was

founded on 24 May 1995 and Shah Alam was the headquartered of the Digi. Digi was

engaged in the establishment, maintenance and provision of telecommunication and related

services. Besides, Digi became the first telecommunication to launch and operate a fully

digital cellular network in Malaysia since 1995. On 14 May 2004, Digi also be the first to

offer GPRs ( 2.5G) and later EDGE(2.75 ) in Malaysia. This mean that Digi had more

competitive advantage to get more market share on Malaysia to compete with other

competitor like Maxis and Celcom.

1,800 MHz band was primarily used by Digi for GSM with the network code of 502-

16. It was listed under the infrastructure category act on the Kuala Lumpur Stock Exchange

(KLSE). Native dialling prefix identifier of “010”, “016”, “0143”, “0146”and “0149” was

used by Digi. The payment is free to the subscriber who switched from their old mobile

service provider over to Digi at this moment. Digi also provided variety of mobile

communication. They offer prepaid and postpaid plan, SMS, data plans and services,

international roaming, international calling card and WAP services.

Digi operates 2G GSM/GPRS/EDGE, 3G WCDMA/HSPA+, 4G LTE network .Digi

has 2G coverage of 95% on populated areas , 3G at 90% , 4G LTE at 85% and LTE-A

coverage 41% nationwide as December 2016.Besides , Digi be the second operator in

Malaysia to launch VoLTE which initially available to iPhones running iOS 10.1.

Nowadays, Digi had growth significantly which has a total of 12.35 million

subscribers (10.39 million are prepaid, and 1.95 million from postpaid customers). Among
the subscribers, 64.5% are Internet and 62% of them are smartphone users and also 3.3

million 4G LTE users.

The change in population in a country can influence on Digi telecommunication

service. Based on the report from Central Intelligence Agency (CIA), it had created a higher

telecommunication network coverage in urban area compare to rural area. The increasing in

population and urbanization in Malaysia had lead to increase the demand for

telecommunication service. In order to increase the sale profit, Digi had increased their

telecommunication coverage in urban and provided cheaper services to respond to the

increasing of demand.

Apart from that, the implementation of Mobile Number Portability (MNP) by

Malaysia government which allow customer switching from one mobile service to another

provider had lead some effect to the telecommunication service industry. The implementation

of MNP had lead more competition in telecommunication service industry. In order to attract

more user, Digi have to lower its price and provide cheaper package like DiGi Friend &

Family package and Digi campus. Apart from that, Digi also upgrade their plan to respond to

the change of lifestyle. For example, the customer can enjoy free call, free sms and free

internet as long he or she hit the limit in one day.

The creative innovation of new product and the significant growth of market share

had driving the Digi won many award over the year including ranked 100th on Forbes

World’s Most Innovative Companies 2014 and ranked as one of the top 3 companies in

Malaysia and also ranked 40 in Asia Top 100 Sustainability Ranking.

Digi vision to deliver the best experience to the customer across Malaysia to enjoy the

capability of mobile internet at anytime, anywhere and on any device.

ANALYSIS OF MARKET STRUCTURE

Market structure consist some of the key traits of a market, which are number of firms,

similarity of the product sold and ease of entry into and exit from the market.

Digi vs Perfect competition

Perfect Competition Digi

Large number of firm Has few competitors in the market
No barriers to entry the market Entry requirement is difficult
Very less amount of capital It requires large amount of capital

Digi vs Monopoly

Monopoly Digi
 It has single seller in the market and  It has a few competitors in the market
the firm is a price setter
Digi vs Monopolistic competition

Monopolistic competition Digi

 It has many small sellers  It has few competitors in the market
 No barriers in entry into and exit from  Entry requirement is difficult
the market  It has competition in price among the
 It is free from price competition competitors

Digi vs Oligopoly

Oligopoly Digi

 It has few seller in the market  It have few competitors in the market

 High entry barriers  High entry barriers

 It requires a large amount of capital  It requires a large amount of capital

 After comparing all the market structure with the Digi, we came to know that Digi is

an oligopoly. Oligopoly is when there is a few seller in the market, as we can say that Digi

has a few competitors that is Maxis and Celcom. The Digi will fiercely compete on the price

with the competitors to attract a larger share market than their competitors. Hence, since they

are the ones that will be setting up the price policy, they will have mutual interdependence

towards each other because as I said, one’s action will affect others. However, in some cases,

the Digi and the competitors would decide to cooperate with each other instead of competing

because they would assume their control on the market and benefit from supernormal profits

in the long run. Other than that, Digi would also choose to work together to prevent new

companies to enter the market, as well as there are high entry barriers which is caused by the

copyrights, patents of the companies, advertisement and the economies of scale. Digi also

requires large amount of capital to incur a good deal of costs on advertising and on other

measures of sales promotion.

BEHAVIOUR OF DIGI

The behaviour of Digi can be identified by considering the number and the size distribution

of firms in the market; the extent to which products are differentiated; how easy it is for firms

to enter the market; and the extent to which firms are integrated or diversified. However,

there are 3 large cellular communication firms (Digi, Maxis, Celcom), individual market

shares are used to measure market power.

Demand Condition:

Overall Subscribers Market Shares

14 36

12 35
Number of subscribers (00'000)

10 34

Percentage(%)
Digi
8 Digi 33 Maxis
Maxis Celcom
6 32
Celcom
4 31

2 30

0 29
Q1 2015 Q1 2016 Q1 2015 Q1 2016

Sources: Malaysian Telecommunication Report Q1 2016

 Digi leads in subscriber market share, Maxis leads in service revenue

 Celcom appears to be the biggest loser among the Big Three in Q1

For the first quarter (Q1) ended March 31 2016, Malaysia’s top three mobile operators

collectively had 36.73 million subscribers. This is lower than the 37.23 million a year ago, or

even the 37.07 million subscribers in the fourth quarter of 2015.

While overall subscriber numbers among the incumbents are lower, it is clear that Digi

managed to gain the most ground in Q1, securing a slim lead over Maxis with a 33.6%

market shares. Although Celcom appears to be the big loser of Q1, by no means is it out of

the race – after all, it is just mere 0.7 percentage points away from the lead, and only shrank

by 0.1 percentage points compared with what it had a year ago.

Supply Condition

Digi Telecommunication Sdn. Bhd. provides mobile voice call, text message, internet

connection and other mobile communication services to 12.3 million users in Malaysia,

which include 10.2 million prepaid plan users and 1.9 million postpaid users. Furthermore,

the numbers of internet subscribers are increasing 7.8%, total 65.8% of total Digi users. Digi

operates 2G, 3G, and 4G LTE network. 4G LTE is the latest technology for wireless

communication for a mobile phone that has the fastest speed in current technology.

(Source: Digi Quarterly Report 4Q16)

The rise of technology had increased the demand for a higher speed and more stable

internet connection. According to the latest Digi quarterly report, the 4G LTE network

coverage is expanded to 85% of Malaysia which covering 275 towns. Furthermore, the data

showed that there are 4.2 million users are 4G LTE subscribers. This is a great achievement
 for the company. The number of internet users increased significantly had risen the internet

revenue about 11.4% to RM2.31 billion.

In conclusion, the supply of Digi 4G internet network is important for the company to

generate its profit. The continuous expansion of 4G internet and provides the lower cost

internet plan were the two of main strategies for Digi to continue be the industry leader in

communication service.

Price competition

In an oligopoly, Digi is using game theory model in which firm make decision that

explicit take each other’s behaviour into account. Telecommunication assumed to provide

homogenous product which adequate capacity to respond to the market demand. It is a non-

cooperative game in which negotiation and enforcement of binding contract are not possible

between them as they are competed in the same market place. They decided interdependence

price strategy, with a small number of firms, each firm profit is depends on very firm’s action.

This means that they are aware of competitor’s market price while forming certain

expectation on rival’s pricing strategy. They either can Maintain Price or Undercut Price.

Telecommunication 1

Telecommunication 2 Maintain Price Undercut Price

Maintain Price 3,3 1,10

Undercut Price 10,1 2,2

Example of Game Theory

The game model is simplified for 2-player model. The payoff for every possible

action are ranked in order in preference (higher number is preferred). The most preference

outcome happened when one of the firm undercut the price while his rival maintain the price

to get greatest gain of market share compare to its rival. There was no change in market share
and profitability when both of them maintain the price. The market share will remain

unchanged same goes to when the firm undercut the price. However, a lower price will

reduce firm profit. Both player have Nash Equilibrium at (2,2) for Prisoner’s Dilemma Game.

This is because each of them know that if he maintained price it is the best interest of the

other to undercut. The firm will used these interaction to escalating the price-war which will

showed in reduced Average- Revenue-Per-User ( APRU )

Example of price war between Digi and Maxis

Year Digi postpaid Maxis postpaid

2013 RM 58 ( 2GB ) RM 50 ( 2 GB )
2014 RM 50 ( 2GB ) RM 128 ( 2 GB )*
2015 RM 50 ( 2GB ) RM 50 ( 2 GB )
2016 RM 48 ( 3GB ) RM 48 ( 2 GB )
RM 128 ( 2 GB )* unlimited call and unlimited sms.

Chart 1 and chart 2 show the APRU of postpaid and prepaid for year 2011 until 2013
Product Differentiation

There are two main categories of product for all the telecommunication companies in

Malaysia which are postpaid plan and prepaid plan. In this section, the entire communication

service price of product from each company will be discussed to show the difference between

the products provided by the big 4 telecommunication companies.

The table below showed the product differentiation for the postpaid plan:

Digi Celcom Maxis U Mobile

Monthly
RM80 RM98 RM98 RM98
Commitment
Call rate unlimited unlimited unlimited unlimited
RM0.03/sms
RM0.10/sms to U Mobile
SMS rate RM0.10/sms unlimited
(Free 300 sms) RM0.08/sms
to other
10GB 20GB 10GB
Internet Plan Weekday+ Weekday+ Weekday+ 30GB
10GBWeekend 20GBWeekend 10GBWeekend
Unlimited
Unlimited Data for
Other Social Apps YouTube,
- -
features (WhatsApp & Facebook,
WeChat) Instagram
and Twitter
For the postpaid plan, Digi provided a more affordable internet plan for their user which

is cost only RM80 compare to the other plan RM98. For SMS rate, although Digi users have

to pay RM0.10 per SMS but Digi is the only companies that offer 300 free SMS which worth

RM30 for their users. In the views of internet plan, to fulfill the demand of the lite-usage user,

Digi offer a less quota plan which is 10GB for weekday and 10GB for the weekend, and at

the same time Digi charge lower monthly cost.

In conclusion, the users can choose the perfect plan for themselves based on their

different needs and companies use different strategies to expand their market and generate

company’s profits.
Advertising

Advertisement plays an important role in every businesses. For sure, DiGi

telecommunications companies have involved many type of advertisement which including

broadcast advertising (conducted by this company is TV and radio) and printed advertising

(newspapers, magazines, flyers). These advertisements will bring message to everybody

about their packages that are offered to people by putting their advertisement in anywhere.

Apart from that printed advertisement can deliver more details and information that broadcast

advertisement is not telling to the people outside there. These advertisements used to create

brand or product differentiation in order to soften the price competition. Through the

advertisements, it can create customer loyalty and attract the customer to buy the product.

They create market power in the sense that the customer may be willing to pay more for the

preferred brands. Thus, it allows these types of firms to allocate it price above marginal cost.

According to previous assumptions with payoffs ranked in order of preference (higher

number preferred) , the most preferred outcome by firms is where one advertises while its

competitors don’t may lead to market share and profitability gain at expense of it rivals.

Other than that, advertising is very important because it influence the change in market share

and profitability. When all the firms did not advertise, there are no changes in the market

share and profitability. As all the firms advertise, the market share remains and reduced

profitability. Digi use similar strategy by advertising less gaining market share and more

profit at expense of its rivals as the table below.

Advertising expenditure by different telecommunications brands in 2015 were as follows:

Communications sector: RM(million)

Mobile line services
Digi 115
Maxis 254
Celcom 99
Conclusion

Digi is one of the Malaysian oligopoly cellular communications industry with high

barriers of entry. There are high exit barriers due to huge capital investment (sunk cost) is

required to operate this kind of market which is under the government licensing restrictions.

In 2016, Digi achieved the highest number of the overall subscriber but there are a few

difference with the other two telecommunications company which is Maxis and Celcom.

Apart from that, Digi also leads in subscriber market share which means that Digi serve are

considerably more profitable than the others company.

The continuous expansion of 4G internet and provides the lower cost internet plan were

the two of main strategies for Digi to continue be the industry leader in communication

service. For examples, Digi had provided a more affordable internet plan for their user which

is cost only RM80 compare to the other plan RM98. This causes Digi company able to

compete with others company and sure the consumer will seek for the lower price and the

higher quality services.

Digi currently doing good job and should continue to push ahead with its plan to allow

the greater customer choices. Digi may able to conduct an advertisement with lower cost to

reduce its expense and getting more profit. Other than that, Digi must conduct benchmarking

against regional and international cellular communication industries on key areas like return

on equity to determine fair-returns, earning per share, service quality control, technical

efficiency, to determine the success of its policies in the future.

Reference

 Digi added more subscribers in 1Q16, now at 12.3 million. (2016,April 26 ) Retrieved

from http://www.malaysianwireless.com/2016/04/digi-adds-subscribers-1q16-now-12-3-

million/

 About DiGi. (n.d.). Retrieved from

http://www.digi.com.my/aboutus/corporate_overview/milestones.do

 Ranking,C. N. (n.d.) Channel NewsAsia Sustainability Ranking. Retrieved from

http://sustainability-ranking.channelnewsasia.com/top3-companies-2015.html

 Ranking,C. N. (n.d.) Channel NewsAsia Sustainability Ranking. Retrieved from

http://sustainability-ranking.channelnewsasia.com/top100-2015.html

 Margin contraction weakens 1Q13 telco result. (n.d.). Retrieved from

http://www.kinibiz.com/story/corporate/26321/margin-contraction-weakens-1q13-telco-

results.html

 Chapree, C., Song, H., Bass, T., F., Cheng, A., Yau, P. T.,& Rabik, N. (2016,March

03).[update:2016 Plans!] The Complete List of Postpaid Plans in Malaysia and What they

Ofter – Celcom, Maxis, Digi and U Mobile. Retrieved from

https://www.lowyat.net/2016/21310/the-complete-list-of-postpaid-voice-plans-in-

malaysia-and-what-they-offer-celcom-maxis-digi-and-u-mobile/

 K. (2014, May 31). MaxisONE plan, the latest postpaid plan from Maxis. Retrieved from

http://www.malaysianwireless.com/2014/05/maxis-oneplan-latest-postpaid-plan-maxis/

 Digi’s new postpaid plans have gotten smarter for 2015. (n.d.). Retrieved from

http://www.soyacincau.com/2015/03/18/digi-new-smart-plan-2015/

 Reference: Goh Thean Eu. (2016). Malaysia Telecommunication Q1 2016 Report.

Retrieved from https://www.digitalnewsasia.com/mobility/malaysian-

telcos%E2%80%99-q1-2016-report-card-oh-dear-oh-my
 http://digi-mobile.listedcompany.com/news.html/id/564506

 https://www.digitalnewsasia.com/mobility/malaysian-telcos%E2%80%99-q1-2016-

report-card-oh-dear-oh-my

 http://www.bursamalaysia.com/market/listed-companies/company-

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 http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C458G7990

 https://www.scribd.com/mobile/doc/58786058/DiGi-Background